Last week, Global Net Lease, a publicly traded real estate investment trust, announced plans to merge with The Necessity Retail REIT, another publicly traded REIT, to create a net lease REIT with a combined $9.6 billion in assets.
But an activist investor in the both REITs, Blackwells Capital, has slammed the merger, claiming it is an attempt by AR Global, the parent company of the advisor and property manager of GNL and RTL, to skirt ongoing proxy fights against current management.
“Shareholders should be on high alert that the compromised boards of GNL and RTL approved a deal that would arrogate a $375 million ransom payment to AR Global, Michael Weil and Nick Schorsch in return for all the value they’ve destroyed,” said Jason Aintabi, founder and chief investment officer of Blackwells, in a statement. “Blackwells strongly opposes the cockamamie merger, and expects most other shareholders to do the same.”
AR Global was founded by Nicholas Schorsch Sr. and run by CEO Michael Weil, who also serves as CEO of RTL.
Schorsch is a familiar name in the wealth management industry, primarily for buying up a slew of broker/dealers a decade ago to, observers say, distribute his real estate investment trusts. An accounting error at a related company brought an end to the strategy.
Long known as a non-traded REIT guru, Schorsch built up American Realty Capital, then made waves when he announced in June 2013 that he and his partners would acquire independent broker/dealer First Allied from private equity firm Lovell Minnick. In fall 2013, he announced plans to buy Investors Capital Holding and Summit Financial Group. In early 2014, he bought Cetera Financial Group from private equity firm Lightyear Capital, and J.P. Turner. He also announced deals to buy VSR Financial and Girard Securities, bringing his network to a total of 9,139 advisors and 11 b/ds at the time under the umbrella of RCS Capital.
But his empire started to fall in October 2014, when RCAP’s sister company American Realty Capital Properties (ARCP) announced a $23 million accounting error. Many independent broker/dealers sold Schorsch’s high-commission REITs.
Schorsch stepped down from his role at RCAP in 2014. The broker/dealer network, now known as Cetera Financial Group, filed for bankruptcy in early 2016, and emerged from bankruptcy and reorganization in May of that year as a private company with a sole focus on Cetera.
In 2019, AR Capital, Schorsch and his former CFO Brian Block settled charges with the Securities and Exchange Commission that they wrongfully obtained millions of dollars in connection with two separate REIT mergers that were sponsored and externally managed by AR Capital. They paid over $60 million in disgorgement and penalties.
Now, Schorsch is back in the spotlight, facing lawsuits and a proxy battle with Blackwells.
Last October, Blackwells nominated two candidates for election to the board of directors at GNL, saying that their nominees would pursue the termination of the off-market management agreement with AR Global and replace it with a more cost-effective one that’s in-line with market practices. The firm also criticized GNL’s corporate governance practices.
Blackwells accused the REIT’s board of “corporate piracy,” arguing that more than 10% of GNL’s income is spent on payments to AR Global and that more than $200 million in fees have been paid to AR since 2016.
Blackwells also slammed the REITs’ performance, pointing to the fact that GNL’s share price declined 64% and RTL’s stock price 62% since 2015.
“The years of abysmal results at each publicly listed entity under the millstone of AR Global, juxtaposed against the astronomical fees that AR Global continues to accumulate, is no longer tolerable,” Aintabi said, in a statement.
Blackwells, GNL and RTL are also in legal battles, with lawsuits flying on all fronts. A New York federal court denied RTL’s and GNL’s efforts to prevent Blackwells from soliciting proxies.
Requests for comment from GNL and AR Global were not returned by press time.
Under the merger agreement, the combined entity, which will operate as Global Net Lease, will internalize the functions that were performed by AR Global, which is expected to generate $54 million in annual cash savings, the firm said. The deal is expected to close in the third quarter 2023.